When evaluating your options for expanding your investment portfolio, purchasing an apartment complex is often suggested as a smart way to diversify your holdings. Whether you’ve got the capital to make the purchase alone or are planning to pool your resources with an investment group, understanding the ins and outs of operating an apartment complex is a prerequisite.
Powell Property Management has been operating profitable apartment complexes in the Burien and in the South Sound area of Washington for over 100 years. Our family-owned business provides 24/7 emergency maintenance and other game-changing services that keep tenants happy and investments profitable.
How Do You Calculate Operating Expenses?
It is relatively easy to figure out how much income an apartment complex offers once you’ve set the rent, but calculating the cost of owning an apartment complex is a separate and more complicated matter. Our rental property expense list can ensure that you can make informed calculations without overlooking any line items. We'll break out the formulas for predicting operating expenses at the end of the blog. Here is a breakdown of the cost of being a landlord so you can decide whether the property you’ve been eyeing will be worth it.
Fixed Expenses of Running an Apartment Complex
If you’re wondering about becoming an apartment complex owner, understanding the fixed cost is vital. These are the expenses we can calculate with future certainty. You expect to pay the following fees at fixed intervals such as monthly or biannually.
Do your homework regarding property taxes. An apartment complex’s tax history is a matter of record. Unless you make major changes, you can expect the past trends in a building’s property tax history to predict its future.
Ensure that your property carries appropriate liability insurance in addition to insurance on your physical property. Habitational insurance should include general liability, property insurance, and an umbrella policy to cover unexpected gaps. Consider a policy that also protects your business income in the event of a disaster or emergency.
Even if your tenants pay their eclectic bills, your building likely consumes electricity outside of each unit. Your building will have a monthly electric bill and other utility bills regardless of the division of responsibility for the utilities between you and your tenants. Analyzing utility bills from prospective properties against utility bills from comparable properties can help identify your potential budget for this or illuminate any potential problems such as elevated water or electric bills.
Property Management Fees
Paying a property manager to operate your apartment complex protects your time and puts experts in charge of your investment. Their market knowledge, industry connections, and skilled team keep your investment profitable without demanding your daily focus. Many landlords are surprised at how partnering with a property manager has increased their ROI.
Some expenses are one-time affairs, whereas others happen at unpredictable rates but will undoubtedly occur at some point.
When a tenant moves out, you have no income from the rental unit until it is filled again. Vacancies are usually staggered in an apartment complex. This is one reason that operating an apartment complex holds appeal, but depending on the size of your complex this also means you will frequently be looking for a new tenant to fill any vacancies that arise. Having a property management company can help to mitigate the ongoing tedious task of filling an empty apartment on the regular.
- Routine- routine maintenance like landscaping, checking smoke detectors, and replacing light bulbs take time and labor. Regular maintenance allows you to discover minor problems and repair them before they worsen.
- Seasonal- Preparing a property for seasonal challenges like rain, ice, and snow requires expertise and time. Snow removal and ice mitigation are important property management responsibilities.
- Emergency- Prompt emergency maintenance can keep the costs of a bad situation down. A ballooning emergency maintenance budget likely indicates a larger problem is at play.
More than routine maintenance, some line items comprise business costs. Sometimes called capex, capital expenditures are big projects such as replacing the roof or water heater, which include more than just a maintenance line item. Keeping all essential systems running within their life span is critical to keeping your apartment complex in good repair and, thus, profitable for the long term.
Powell Property Management is Your Best Bet for Investing in an Apartment Complex.
Our family-owned property management company has provided elite full-service to south Seattle landlords for over 100 years. Powell Property Management is ready to take great care of your tenants and investment. Give us a call at 206.824.3733 or fill out our form online Let’s connect today.